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tv   Newsline Prime Time 30min  KCSMMHZ  March 23, 2013 3:30pm-4:00pm PDT

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♪ japan's central bank gets a new boss, his number one task, ending years of deflation. inflation tops the list for china's central bank chief. he's put off retirement to help oversee the economy. hello i'm yuko fukushima and this is "asia biz forecast." for many this past week the central focus was the central bank. the bank of japan welcomed a new chief and opened the door to a
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new era of monetary policy. haruhiko kuroda was sworn in wednesday as the new boj governor. he took over a day after masaaki shirakawa stepped down, kuroda bringing an end to more than a decade of inflation. prime minister shin bow abe it requires closer coordination between the government and the central bank as well as a boj chief willing to undertake bold monetary easing. by all accounts, kuroda is his man. >> translator: the japanese economy has been struggling with deflation for nearly 15 years. the greatest mission of the central bank is to end deflation and achieve the inflation target of 2% as soon as possible. >> cue row do da has said he
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believes the boj can achieve the target within two years and says he'll use every tool at his disposal to make that happen. >> translator: the bank of japan must use all possible means to achieve the 2% inflation target. by expanding monetary easing both in terms of volume and quantity, the 2% inflation target can be achieved. >> joining kuroda are two more deputy governors, kikuo iwata, a former professor and former executive director hiroshi nakaso. iwata is a long time proponent of using a so-called reflation policy to stamp out deflation, like kuroda, he maintains that pumping money into the markets
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would lift consumer prices. >> translator: my research is focused on studying the best policies to end deflation. i now have a grave responsibility to implement my proposals through actual policy. >> japanese business leaders welcomed the changing of the guard at the central bank. >> translator: i hope the boj in cooperation with the government will take bold financial easing measures to end long-term deflation as soon as possible. >> translator: i have high hopes now that the boj has adopted a new stance of freely implementing financial easing. i believe this is one major way to help defeat deflation. >> not everyone is so confident. finance minister taro aso took aim at comments iwata made during confirmation hearings. iwata said the central bank could meet its inflation target
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in two years. >> translator: i realize that only academics who do not understand the real economy can make such definitive statements. >> and in his final news conference as boj chief, shirakawa expressed concern about remarks made by his successor. >> translator: mr. kuroda said that the boj should work with market expectations. if the meaning is that the central bank can control the markets with words, well, i think that's a dangerous way to view the markets and monetary policy. >> shirakawa questioned iwata's claim that increasing the money supply through monetary easing would nudge prices higher. >> translator: some people hold the opinion that currency
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supplied by the central bank will prompt inflation but as we can see from japan's past experiences and in recent examples from the u.s. and europe, there's no longer a clear link between the size of an economy's monetary base and inflation. >> i spoke with two long time observers of the boj and asked for their thoughts on the bank's new governor. masazumi wakatabe is a professor of economics at waseda university. professor wakatabe coauthored a professor at yale university an adviser to abe's administration. professor wakatabe supports the prime minister's economic and financial policies. he's among a group of scholars that has long called for more aggressive monetary measures by the boj. takeshi fujimaki worked at jpmorgan where he became known as a legendary trader for his
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success as a currencies dealer. he served as an adviser to billionaire investor george soros. he is referring to a situation in which prices spike so rapidly that a country's currency becomes virtually worthless. what do two experts with opposing views have to say about the boj and outlook for japan's economy? we began our conversation looking back at former boj governor's shirakawa's policies. >> he was a good guy and did the maximum job. regarding the monetary policy to raise the interest rate or lower the interest rate is -- he in that sense did a good job and but the problem is that the last stage was not so good.
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>> what do you mean by that? >> i mean when the prime minister abe asked him to set up a 2% inflation target he should resign by saying that it's not our responsibilitydo so and i think the boj should be a kind of father, a very stable institution, and it should be independent. >> i have to say that he fails by his own standard. boj has two objectives, one is a price stability and the other is financial stability. i think will shirakawa had done a great job in maintaining financial stability throughout his term but he failed on the first account, the price stability.
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that means that he couldn't really get away from deflation, so he couldn't beat deflation within his term. >> i also talked to them about the new boj policy chief and his monetary policies. wakatabe has high hopes for the new governor. >> oh, i think his monetary policy is correct, the targeting has been adopted by almost all major advanced economies and japan needs some kind of inflation. it seems ambitious but actually we need this kind of ambitious, aggressive monetary policy to get out of this economic stagnation. i would say that we can raise the inflation target even more, so three or four could be the more ambitious goal but within two years i think 2% is just
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enough. >> i think 2% inflation target is extremely hard to achieve. the reason is that even from 1985 to 1990s the cpi rate was below, basically below 2%. that was a hectic time. the economy was so bullish but the cpi was low. why at the time the economy was strong the reason was that asset inflations and the price went up sharply and people feel they become rich and they spend more money, so asset price increases asset price, stimulates the real economies so i think if mr. kuroda sets up an asset inflation target, it may work. >> so what are your thoughts on boosting quantitative easing? do you think there are any risks to that? >> the boj has already started quantitative easing from the year 2001. i think there was no good effect
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so far, and i don't expect even for pumping in the money more i cannot imagine that they're a good effect on the economies, and it will not depreciate so there is no effect but the risk side, hyperinflation risk is so large, so big so i'm very concerned about that. >> so if you were the boj governor, what kind of monetary policy will you carry out? >> i kept saying that the boj should take the interest rate, if people make a deposit with bank, maybe they have to pay an interest to the bank instead of receiving the interest from the bank. >> why is that better than quantitative easing? >> to pump in the money to the
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market or to the world, to society is easy, but absorbing money from people is almost impossible. that's the reason why we have experienced hyperinflation. the reason just like if i like to absorb money maybe boj sells jgbs which they have already bought and if people don't want to buy jgbs, they will look to me, to bojs. >> fujimaki warns that hyperinflation is eminent. he says the price of goods will rise suddenly and drastically and hit people hard. when do you think hyperinflation will happen? >> could happen tomorrow or could happen in the three years later. i don't know the timings but i think crisis is approaching i think. >> high probability of hyperinflation in three years' time?
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>> yes, that's right. some people say that hyperinflation, in the history, hyperinflation occurred only one time, but in other words hyperinflation occurred on the abnormal conditions but i think pumping the money into the market is abnormal situation to me, just like i'm in, when i was working for american bank, i also take care of liquidities, and compared with those days, today there are so many monies. so it's abnormal situations now. >> wakatabe is more optimistic. >> if i, for example, if the government gives the $100 million, sorry, 100 million yen to each individual in japan and the government, the prime minister said that the money would be financed by the boj, then i think we would have to really worry about hyperinflation, but 2% inflation is actually the average figure
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among the vast economies, so it's too early i think to worry about hyperinflation. >> the two experts also have different views about japan's economic outlook. wakatabe thinks monetary policy might be able to solve deflation but he's doubtful about its overall impact on the economy. do you think powerful monetary easing alone will get japan out of deflation? >> i would say on principle, yes, because there is a misunderstanding that people talk about growth strategies, right, so we need growth strategies to really get japan out of deflation, but that's not really true. if you take a look at the advanced economies, suppose take italy and the united states, the
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growth rates are quite different but they achieve actually the same range of inflation rate, one to three, so growth rate, of course growth is important, but the growth strategy is not really necessary to, for japan to get out of inflation. >> so what are you suggesting? >> i would call it growth strategies because right now it's quite dubious because the government wants to intervene to revive the economy. that kind of government intervention would not work. i would suggest it's more competition policy, more deregulation but deregulation in terms of the breaking down the entry barrier, that would help. >> for example in what sector? >> well, i would say that the, well, actually that's my sector of education, for example, education sector and all sorts of service sectors and of course the agriculture should be deviated. i wouldn't say that's, you know,
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we don't need any regulation. that's too far, but what we need is a right regulation and so far i think that what we need is more deregulation rather than regulation. >> fujimaki sees no easy road ahead for japan's economy, but he says there will be creation after destruction. what do you think is needed to prop up japan's economy now? >> unfortunately there is no way i think. i kept saying that weak yen would be very helpful to japanese economies. if the japanese government has
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taken easy policies, maybe japanese economy think about drastically already but unfortunately the last ten years accumulated debt increased substantially, maybe three times in the last 15 years. so they can't make a budget. so it means that it makes bankruptcy, accelerates the bankruptcy of japan i think. >> so there's no future for japan? >> no, it's -- yes -- no and yes. i mean i like to say that we have to accept the truth, especially it's tough for older generations because we may not expect any patience, whether the asset builds up in the yen, if our generation passed away, leaving this huge amount of debt, young people have to work, just work to pay back that debt, and they have to work only to pay a tax, hopeless, but if something happened, huge debt disappear, so young generations start a very good start once
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again, it's a kind of reset, and a kind of rebalance appropriate over old generation and young generation i think. so in the medium term i'm optimistic but in the short term i'm very pessimistic. i'm mixed to running sooner or later. in that sense i'm pessimistic and also i'm optimistic. >> the new bank of japan policymakers are scheduled to meet april 1st and 4th. they want to know if concrete measures to end deflation will emerge from the meeting. china last week put the finishing touches on a once in a decade leadership transition.
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most of the appointments were finalized months in advance with one high profile exception. authorities decided late in the game to keep zhou xiaochuan as head of the central bank. analysts say the mood reflects the need to speed market reforms. the changes are considered vital for achieving sustainable long-term growth. senior officials want to give zhou more time to overhaul china's financial system. delegates to the national people's congress voted on march 16th to extend zhou's tenure as governor.
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he joins other members of newly appointed leader's team. li has the task of steering the chinese economy over the next decade. he spoke shortly after taking office about his priorities. >> translator: maintaining stable economic growth, holding down inflation and controlling potential risks are most important for avoiding major economic fluctuations. >> reporter: zhou's reappointment provides china's new leaders with a measure of continuity and ensures the central bank remains in the hands of a veteran with a track record. zhou was born in jiangsu provinces and graduated from nhua university. he led china's security watchdog and china's construction bank before joining the people's bank of china or pboj. zhou turned 65 in january, the age when most officials retire but he was promoted to a national leadership position this month, that made him exempt from mandatory retirement and allowed him to keep his post at
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the central bank. zhou's tenure is not only the longest in china's central bank's 64-year history, he's one of the longest serving chiefs in the world. zhou took the helm of the pboc in 2002. he has engineered a number of major changes since then. zhou is considered the architect of the country's broad financial reforms. he was the driving force behind the liberalization of interest rates and he was also in favor of scratching the yuan back to the u.s. dollar. china watchers say zhou has played an important role in transforming the state-controlled economy. >> in terms of economic and
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financial sector reform, governor zhou has been involved and also had been leading a lot of the very important reforms that will help china to advance in this next stage of development, and for example in 2005, governor zhou has, the pboc announced the reform of the exchange rate and in 2010, i think with a lot of the liberalizations of the capital account and we have offshore renminbi market and the national stage which helps to pave the way for possibility the new renminbi as the reserved currency in the years to come and last year pboc has removed to some extent the ceiling of the benchmark deposit rate by allowing for 10% floating and also the floor of the benchmark lending rate allowed for 30% of the downward floating and that's a very important step towards liberalizing the interest rates and the correcting the cost of capital to at least some extent so i think that's also a remarkable achievement. >> chang predicts the central bank will make the yuan convertible as early as 2015. zhou's recent comments suggest
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he and the new premier are on the same page. zhou says his main goal this year is to guard against inflation. he said people need to keep close tabs on rising prices. inflation reached a ten-month high in february of 3.2%. >> translator: the pboc closely watches cpi. we will use currency measures to stabilize prices and control inflation expectations. >> reporter: the barclays economist says zhou is unlikely to make any radical shifts in monetary policy in the near future. he cites the continuing global economic uncertainty. but chang says more needs to be done. >> there are a series of reforms in china that needs to happen. it could include the reform on the financial sector which i would think is the most important one and also the fiscal reform, because these two tend to go together.
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and also breaking up the monopoly and including also the reforms to improve income distribution and also some of the changes happen to allow for better environmental protection. i think these are all kind of very important and urgent reforms that needs to happen and to tackle some of the critical issues that china is facing at the moment, but in terms of what the pboc could do and was probably relatively easier to push forward i would think interest rate reform, more flexibility of the exchange rate, more opening of the capital account especially in the areas of outward direct investment and portfolio investment for the domestic
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residents, and these are the areas i think there is a relatively less resistance from the domestic interest group and also there has been consensus been viewed that these are the things that needs to happen towards a more market-based economy. >> zhou is in an unusual position among global central bank governors. he administers monetary policy and played a key role in developing china's financial system but his powers are limited in china, decisions on interest rates and other policy matters are in the hands of the state council, not central bankers. now on to other business news making headlines this week in the region. buyers may cringe and sellers might smile as they sift through the latest data on home sales in china. >> new home prices picked up pace again in china. the national bureau of statistics surveys 70 major cities every month.
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in february, prices rose 3.1% month on month in guangzhou, 2.4% in beijing and 1.9% in shanghai. the number of cities with higher readings jumped by 13 to 66, more than 90% of all cities surveyed. the government this month unveiled new curbs on real estate transactions, officials hope to cool the red hot property market. a preliminary survey of factory managers in china bolsters expectations for a moderate rebound in the world's second largest economy. the hsbc flash purchasing managers index climbed to 51.7 in march, that was up from 50.4 in february, and the highest level in two months. hsbc's chief economist for china said in a report that the march results reflect an increase in
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new orders and stronger production growth. the chinese economy remains on track for a gradual recovery. india's central bank cut a benchmark interest rate for the second time this year, in a bid to revive the slowing economy. reserve bank of india officials announced the move tuesday, after a policy meeting. the bank lowered its key rate by 0.25% to 7.5%. it was the second consecutive cut by the bank's monetary governors. they previously slashed the rate at their january meeting. officials had been keeping interest rates high to fend off inflation. that led to higher interest rates on loans and dampened demand for cars and other products. the central bank released a statement noting that india's growth slowed to a four-year low of 4.5% during the final quarter of last year.
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it said an additional rate cut was necessary to support the economy. sri lankans on monday celebrated the opening of a new airport built with funds from china. president mahinda rajapaksa and other senior government officials were among the first people to land. the mattala rajapaksa international airport is in the southeastern city and it has a 3.5 kilometer long runway and is the country's second international airport. the first is in the largest city, colombo. construction costs more than $200 million, 90% of which was covered by a loan from china. china's influence is growing in countries around the indian ocean. chinese officials want to secure stable roots for transporting crude oil as well as sea lanes from africa and the middle east. officials have stepped up aid to countries such as pakistan and myanmar. observers say the sri lankan airport is also part of that campaign. and finally here is a look at what's happening in the week ahead. negotiators from japan, china and south korea will gather tuesday in seoul. the three-day meeting will be the first round of free trade talks between the asian neighbors. that wraps it up for this week on "asia biz forecast."
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for me and from the rest of the team thanks for watching and see you next time.
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